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Inflation
Context:
An article, part of the RBI’s September bulletin titled “State of the Economy” noted that despite CPI inflation staying below the target for two consecutive months, food price volatility remains a significant concern.
Consumer Price Index (CPI)
This is a critical economic indicator used to measure inflation by tracking changes in the price levels of a basket of goods and services purchased by households.
Composition of CPI
- Food and Beverages: This category holds the largest weight at approximately 45.86% of the total CPI, including subcategories like cereals, milk products, and vegetables.
- Housing: Accounts for about 10.07%, reflecting costs related to rent and utilities.
- Miscellaneous Expenses: This includes various sectors such as transportation (8.59%), healthcare (5.89%), and education (4.46%).
Methodology
- Data Collection: The Ministry of Statistics and Programme Implementation (MoSPI) collects price data from over 1,100 urban markets and nearly 1,200 villages, ensuring comprehensive coverage across different regions of India.
- Base Year Revision: The CPI was revised to a base year of 2012=100 in January 2015 to enhance accuracy and relevance in measuring inflation trends.
More on News
- Headline inflation, measured by year-on-year (y-o-y) changes in the all-India CPI, increased slightly to 3.7% in August 2024, up from 3.6% in July.
- The slight rise in inflation in August was attributed to an unfavourable base effect of about 5 basis points (bps), with the overall index remaining unchanged from the previous month (zero momentum).
- The article also highlighted the global slowdown in economic activity and the sluggish pace of disinflation, which has led monetary authorities to act cautiously.
Inflation
- Inflation refers to the general increase in prices of goods and services in an economy over time, leading to a decrease in the purchasing power of money.
- Headline Inflation: It refers to the total inflation within an economy, including all categories of goods and services, particularly volatile items such as food and energy prices. It is often reported through the Consumer Price Index (CPI).
- Core Inflation: It is a measure that excludes certain volatile items from the CPI, specifically food and energy prices. This adjustment provides a clearer view of long-term inflation trends without short-term fluctuations .
